"President of the Republic Demetris Christofias has appointed a new cabinet," a statement from his office said, including Kazamias in a list of ministers.
The finance portfolio is the most significant appointment at a time when both the central bank and the island's largest lender have warned that it could become the fourth euro zone economy to seek an international bailout unless there is urgent action to correct fiscal imbalances.
"What I hope is for sensibility and consensus to prevail. The problems affect the whole country - no one is exempted," Kazamias told Reuters after his appointment.
Concerns have accelerated since a massive blast of decaying stored munitions on 11 July that destroyed the island's main power station and caused an unprecedented energy crisis.
The reshuffle replaces a cabinet which resigned on 28 July, bowing to public pressure over the blast, which sharply aggravated financial difficulties in Cyprus (see background).
The island has suffered a series of ratings downgrades because of fiscal slippage and the exposure of its banks to debt-burdened Greece.
Kazamias was previously communications minister in the administration of the late President Tassos Papadopoulos between 2003 and 2004. He was also a member of the European Court of Auditors for six years up to November 2010.
Although Kazamias is not the high profile figure some investors had hoped for, Cypriot economist Stelios Platis said he had the advantage of both being a member of the ruling Communist Party, and thus able to negotiate better with trade unions, and having experience of the EU.
"Given his background and political involvement in Cyprus it is much easier for him, rather than anyone else I could ever think of," he told Reuters.
All three major credit rating agencies have downgraded Cyprus in the last few months because its banks are sitting on an estimated 5 billion euros in Greek sovereign debt and its economy is heavily exposed to Greece through trade.
The junior partner in the previous two-party coalition government quit on Wednesday, making agreement on vital economic reforms more difficult and potentially complicating reunification talks on the island, which has been split between Greek and Turkish Cypriots since a Turkish invasion in 1974 following a Greek-inspired coup.
The centrist Democratic Party, coalition partners with the Communist AKEL since 2008, said they were leaving government after exhausting all room for further cooperation.
Cyprus has a presidential system and the pullout is not seen as endangering the survival of President Christofias, whose term expires in 2013.
But passage of essential economic reforms largely depends on parliament, where Christofias' party does not have a majority.
Christofias brought six new ministers into the 11-member cabinet. Outgoing Communications Minister Erato Kozakou Markoullis was moved to the foreign ministry -- a post she held for around eight months under the previous administration.
Since the euro zone's sovereign debt crisis erupted last year, the European Union and the International Monetary Fund have announced multi-year bailouts of Greece, Ireland and Portugal.
A rescue of Cyprus, a euro zone minnow which accounts for only about 0.2 percent of its totally economy, would not strain Europe's resources.
But it would add to a fevered atmosphere in the euro zone where markets this week have turned their sights on Italy and Spain, the zone's third and fourth biggest economies.
Cyprus will hold the rotating EU Presidency from 1 July 2012.
EurActiv with Reuters